Seeing The Future

The waterpark resort business model is changing. Here’s how to prepare now to reap future rewards.

The original premise of the waterpark resort hotel was to sell access to a great family amenity through high hotel rates. Today, that idea is adapting in ways we couldn’t have expected when it all began. It’s already transformed incrementally. For example, with more revenues from spas, food and beverage, and upgraded rooms, the waterpark is not necessarily the profit leader anymore.

And more change is coming.

With all of this upheaval, it’s time to take a fresh look at the business model, whether you’re just coming into the industry, or have been here awhile.

The outlet model

To understand change, it’s often helpful to start by viewing the state of affairs through the eyes of a similar situation that’s further along. Outlet malls — yes, outlet malls — are a surprising, but useful analogy.

The first outlet center was in the Berkshire Knitting Mill facility in Reading, Pa. In 1970, a dropcloth separated the retail store from active mill machinery, and it evolved into a center with more stores over the next decade. Outlets spread across the United States in the 1980s on the basic premise that people would drive 30 or more miles out of town to shed-like buildings — retail shops — just off the Interstate (where they wouldn’t offend department stores). The payoffs for customers were good deals and a slightly thrilling purchase experience, like buying from the back of a truck next to a warehouse down at the docks.

Once the idea took hold, outlet-center developers and retailers wanted to get closer to their customers, so they seized the opportunity to move closer to metro areas as department store power began to wane. Outlets reached the suburbs approximately 10 years ago and today are located everywhere, including many resort destinations. But they’re not all the same. The mix of tenants varies with location. Upscale centers, with tenants to match, were built in areas with the potential for a steady flow of affluent customers. Midscale facilities found even more spots to access their markets.

There were also the experiments. One example is the off-price retailers mixed with outlets and entertainment in the more than a dozen Mills Corp. malls (acquired last year by an investment group lead by Simon Property Group of Indianapolis and Farallon Capital Management of San Francisco). The Mills malls are as large as 2 million square feet, with a modern design and a theatrical sense. In time, virtually all clothing and accessories brands piled into this new distribution channel, and clusters of outlet centers became destinations themselves. One example is the 1-million-square-foot area near Schlitterbahn Waterpark Resort in New Braunfels, Texas. There, shoppers can bargain hunt in the Prime Outlet Center and the Tanger Outlets in San Marcos, Texas.

Some outlet retailers boldly followed customers home to traditional centers, and others have stopped calling themselves outlets.

Currently, outlet sales estimates are between $15 billion and $18 billion, with approximately 55 million square feet of retail space. The most recent trend — consolidation — shows the category nearing maturity. At one point, there were close to 100 outlet-center owners. Now there’s just a small handful of companies that own the overwhelming majority of all centers. The top three are Simon Property Group, which is also the largest owner of regional malls; Prime Retail Inc., based in Baltimore; and Tanger Factory Outlet Centers Inc., headquartered in Greensboro, N.C.

Some older facilities — too far from customers, not attractive enough, or simply lacking many amenities — have been torn down or are shadows of their once profitable selves.

Changing waterpark resorts

Waterpark hotels are following a similar path. Some of the original waterpark hotels are already gone, and the hotel industry itself has consolidated into a handful of brand families with many investors. The first real nationally franchised chain was Holiday Inn, founded in Memphis in 1952. Hotel chains have proliferated for decades and began merging into brand families rapidly in the 1980s. Today’s big hotel brand families — Hilton, Marriott, IHG, Choice, Hyatt and Starwood (each with a handful of brands) — firmed up in the past 15 years.

Much like the outlets, waterpark hotels have followed their patrons home, too, with many opening new, metro-area locations. The waterpark’s role in the resort is changing as well. It’s not always the lead economic dog anymore. In an effort to draw a new flow of family business, waterparks are increasingly being added to what otherwise might be termed business hotels.

What does this mean for you as an operator? Put simply, as you contemplate new locations and renovations or upgrades to your existing property, you’ll have to determine (1) which markets you will build your hotel business model around, (2) the role the waterpark have in it and (3) which other amenities you will need.

In addressing the first consideration, you’ll want to look at several available flows:

business travelers

nonfamily leisure travelers

extended stay patrons

young families

event, show or convention-goers.

It’s important to recognize that while all of these flows will pay to stay, they might not all use the waterpark.

In short, there’s a new emphasis on the “hotel” part of the phrase “waterpark hotel.” This leads waterpark hotel feasibility analysts back to questions asked in standard hotel feasibility studies: Which markets can we sell rooms to? At what price can we sell rooms? In what usage pattern of days of week and weeks of year can we sell rooms? What amenities should we offer? How many rooms can we justify for each market?

New markets

Once you’ve determined new potential markets, it’s time to consider the role of your waterpark. The resort world understood the value and ageless appeal of water play generations ago. Grand beach hotels were built along the coasts and on lakes. Sandusky, Ohio, which is now a waterpark cluster, started as a beach resort community. More contemporary examples are the grand pool complexes at some resorts in the Caribbean, Hawaii and even on the mainland in Arizona, Texas and Las Vegas.

Many of these facilities feature some of the same elements as indoor waterparks, including slides, lazy rivers and splashpads. The twist for these resorts is that many manage to appeal to all demographics. New resorts and vacation village operators (condos, fractionals and time-share properties) now add great water complexes into their packages, along with golf courses, meeting facilities, spas, restaurants and marketplaces.

When it comes to attracting leisure guests, location is key. If you’re in a metro area, you can target the large resident population for year-round day use, particularly for special events. This is especially true if you’re located in upper middle-income communities that have typically fueled waterpark hotels.

Many of today’s waterpark resorts are in rural areas and don’t have large customer bases; there isn’t much point to selling admissions to locals. Local market analysis of waterpark demand will enable you to determine if this is the right strategy for you, but even if there’s a local outdoor waterpark, it’s only likely to be open approximately 110 days a year. If you do decide to target locals, be sure to build in plans to prevent overcrowding.

Schlitterbahn Waterparks, at its new locations in Kansas and Texas, is aiming to have it both ways by developing a hotel next to a resident market outdoor waterpark. These parks will follow the Schlitterbahn Galveston Island Waterpark model in which part of the waterpark is covered and heated in winter to keep families visiting through the cold months.

Finally, consider the other amenities your hotel resort might need moving forward. Many metro areas already support regionally oriented resorts and, in the near term, many are likely to add indoor and outdoor waterfeatures to their mix of amenities, which typically includes spas, meeting facilities and golf.

Case studies of local competition will help you ascertain which markets you should enter, but one thing to think about is how you might add adult appeal. This will enable you to attract the business and adult leisure parties. And, demographically, it makes sense. Only about 20 percent of all households have children aged 12 and under — and most of those households can’t afford a $200 average daily rate (ADR).

Attracting business travelers

While we might assume that business travelers won’t want to use the waterpark, you should continue developing ways to entice them to do so. Probably the best way to charge business travelers for waterpark admission would be through higher room rates. Separate entrance fees would be harder for them to expense.

Consulting with your designer also may be helpful in bringing the business travelers into your waterpark. Design ideas that have been discussed range from adding adult-oriented waterfeatures and lush landscaping, aquarium walls or even, where permitted, a swim-up bar.

Another idea would be to reconceptualize the indoor waterpark as a kind of high-throughput day spa. However you decide to get your business travelers in the water, realize that if you’re truly competing with other business hotels for this market segment, it’s shortsighted to leave your big gun in the holster.

In the end, review the potential market capture you have from these different market flows and assemble a business model that appeals to the ones you want to target. Be sure the waterpark market is large enough to justify such an investment and think about broadening its appeal to adults.

Also remember that moving forward, changing travel trends likely will to influence one or more of the segments you serve, impacting your business more than ever. By understanding these trends and applying them to the new business model, you can build better occupancy, higher revenues and perhaps a degree of insulation from the possibility that there may be too many standard waterpark hotels in your area. Most of all, investors will come to expect that you can compete in the new market.

The designers are taking calls from many existing hotels, and you can expect the business model to continue to shift. Like outlets, waterpark hotels have moved into cities and are spreading out across the nation in many ways. There’s a great line from science fiction writer William Gibson that sums this up nicely: “The future is already here, but it’s unevenly distributed.”